Over the course of 2017, the value of a single Bitcoin rose from around $900 to nearly $20,000, with most of that increase coming in the last three months of the year. In mid-December, however, the speculative party came to a screeching halt when it was revealed that US government regulators had decided it was time to take a closer look at this virtual mint. As a result, many investors spent their Christmas and New Year’s 2017 holidays desperately trying to find someone who hadn’t been paying attention to purchase their Bitcoins before the red ink hit the fan. Some did. Others lost their shirts.
As the slide continued into 2018, there were dark clouds indeed hanging over the entire blockchain gravy train with Bitcoin valuations sagging to less than $5,900 by mid-June. The seemingly endless cascade of dismal news caused many to stare blankly at their tablet screens and wonder aloud: "Is that it? Is the party over? Is it time to call it a day?" While it might seem that cutting bait and getting on with your life would be the prudent move at this point some folks are telling anyone who will listen to wait before hitting that sell button.
A company called Hedge Fund Research or HFR has developed a pair of indexes that keep an eye on cryptos by tracking the performance of fund managers that specialize in crypto. Both of their indexes are down by 49% in 2018, a number that doesn't take into account the steep fall experienced by Bitcoin in late December 2017. In fact, the indexes have moved lower in all but one month (April) so far this year and April's gains have since been wiped away, and then some.
So when people try to sound upbeat on digital coins, HFR is all too happy to throw cold water on their optimism. But HFR are not the only ones following Bitcoin and others have a much rosier picture to paint.
One of those who has refused to head for the ledge is Tom Lee. Lee has been following Bitcoin and other cryptocurrencies for some time and has gained a reputation for providing leading-edge research on the topic. His company Fundstrat Global Advisors have been watching the Bitcoin faceplant with more than a little interest. They see what is happening now as just another of several steep dives the currency had undergone since its launch by the enigmatic (and likely nonexistent) Satoshi Nakamoto 10 years ago.
According to Lee, Bitcoin has on two previous occasions dropped more than 65% of earlier highs and on both events, the virtual currency rebounded with a vengeance. The first time rising more than 250% and the second time rebounding more than 50% off of its low. Based on this historical trend Lee is sticking with a prediction he made earlier this year that we would see Bitcoin at $25,000 by Dec 31, 2018. Of course, that would require a hefty rise of nearly 300% between now and New Year's Eve, but Lee is confident his analysis has it right.
Some openly question Lee’s sanity while others suspect he may secretly be deep in crypto debt and trying to leverage his position to extricate himself. That, of course, would be highly unethical and there is not the slightest indication it is the case. So that aside, is Lee right?
Could Bitcoin be scraping the bottom of the upper atmosphere by December 31st or is it all so much wishful thinking? Let’s take a closer look at what caused the drop to see if we can find out.
Things go up, and things go down. It's the nature of the universe. However, there is down, and then there is down. And most analysts look at what has happened to Bitcoin since the end of last year as an example of the latter. They point out that the cryptocurrency did not crater as the result of some broader market fluctuation like a recession. Instead, investors got spooked because Uncle Sam told his secretary he was going out to take a look at this Bitcoin nonsense and see if it violated any laws. While the government's investigation has so far not yielded any specific new regulations, many feel it is just a matter of time. That fact alone is going to put sustained downward pressure on Bitcoin, preventing it from rebounding too high no issue how many new investors come online who are ignorant of the looming regulatory guillotine.
“So what’s the big deal about regulation?” You ask. Well, the big deal is this: digital coins have attracted widespread attention for some reasons. Among them is the possibility of anonymous wealth since this type of economic or quasi-economic activity exists in a regulatory vacuum where names aren't always necessary. Imagine becoming filthy rich without the tax man being aware of it. That possibility holds a strong attraction for many people. Another reason Bitcoin et al. have thrived is that they promise to put an end to what many see as an oppressive, corrupt banking system that can be easily manipulated by a few influential players. Removing these middlemen from the economic equation will help level the playing field for everyone, proponents say, and make banks and bankers obsolete.
But do you know what could undermine both of these idealistic futures? Regulation. That's right. Bitcoin + regulation = just another dead end financial idea. Add to all that the genuine possibility that certain militant organizations could exploit the crypto economy to funnel vast amounts of money anonymously to their operatives around the globe and you have another compelling reason for the government to step in.
So is Bitcoin headed for a spectacular rebound or a slow, painful death at the hands of the regulators? Only time will tell, but it would seem right now that the wise person is not going to hold their breath waiting on $25,000.